5 Things to Consider When Leasing or Buying Commercial Property

When it comes to acquiring commercial property, whether by lease or purchase, the process can be complex and full of legal considerations. Here at RDC, we have advised numerous clients navigating the commercial property market and know that failing to properly assess key factors can lead to costly mistakes. To help you make an informed decision, here are five critical aspects to consider before committing to a lease or purchase.

Understanding the Terms of the Lease or Purchase Agreement

Before signing any contract, it is vital to understand the terms set out in the lease or purchase agreement. Many business owners overlook important clauses that could later impact their operations.

Leasing Considerations

• Length of the Lease – Consider whether a short-term or long-term lease best suits your business needs.
• Rent Reviews – Be aware of how and when rent increases will be applied.
• Break Clauses – These allow you to terminate the lease early under certain conditions, which can provide flexibility if your business circumstances change.
• Repair Obligations – Ensure you understand your responsibilities for property maintenance and dilapidations to avoid unexpected costs.

Buying Considerations

• Title and Ownership Issues – Conduct thorough due diligence to confirm that the seller has the legal right to sell the property.
• Restrictions on Use – Check for any restrictive covenants that may limit how you can use the property.
• Planning Permissions – Ensure that your intended business use aligns with local planning regulations.

A solicitor can help review these agreements and highlight any potential pitfalls before you commit.

Location and Planning Permission

The location of your commercial property is often a crucial factor for business success. However, beyond the commercial viability of the area, you must consider legal and regulatory aspects.

• Zoning and Planning Permissions – Ensure that the property has the necessary permissions for your intended use. For example, an office may not be permitted to operate as a retail shop without a change of use application.
• Local Authority Restrictions – Some properties are subject to local authority conditions, such as conservation area restrictions, which may limit modifications you can make.
• Future Developments – Investigate whether there are any planned developments in the area that could impact your business positively or negatively.

Failing to check these issues before leasing or purchasing a property can result in costly legal disputes or difficulties in obtaining necessary approvals.

Financial Implications and Costs

Acquiring commercial property comes with a range of financial considerations that go beyond just the lease payments or purchase price.

Leasing Costs

• Rent Deposits – Landlords often require a rent deposit, which can be a significant upfront cost.
• Service Charges – If the property is part of a larger complex, service charges may apply for communal areas.
• Business Rates – Ensure you understand the business rates applicable and whether any reliefs apply.

Buying Costs

• Stamp Duty Land Tax (SDLT) – Payable on property purchases above a certain threshold, SDLT can be a significant cost.
• Legal Fees and Surveys – These include solicitor fees, valuation surveys, and environmental assessments.
• Ongoing Maintenance and Insurance – If you purchase, you are responsible for all property upkeep and insurance.

Understanding all potential financial obligations will help you budget accurately and avoid unexpected expenses.

Due Diligence and Property Condition

Conducting due diligence is an essential part of purchasing or leasing commercial property. This ensures that the property is legally sound and free from defects that could impact your business.

• Structural Surveys – A full structural survey can identify potential issues such as subsidence, dampness, or roof damage.
• Legal Searches – These include land registry checks, local authority searches, and environmental assessments to ensure there are no legal disputes, contamination risks, or other liabilities.
• Energy Efficiency and EPC Ratings – Commercial properties must meet minimum energy efficiency standards. Check whether the property complies with energy performance regulations.

If problems are discovered during due diligence, you may be able to negotiate repairs, compensation, or reconsider the deal altogether.

Exit Strategy and Future Flexibility

Before leasing or buying a commercial property, consider your long-term business plans and whether the property supports future growth.

Leasing Considerations

• Subletting and Assignments – Some leases allow subletting or assigning the lease to another tenant, providing flexibility if you need to relocate or downsize.
• Break Clauses – If you anticipate business changes, ensure your lease has a break clause to allow early termination.

Buying Considerations

• Resale Value – Consider the property's potential appreciation and how easy it will be to sell if you decide to move.
• Expansion Potential – If you foresee business growth, check whether the property can accommodate expansion.
• Market Trends – Research market conditions to understand whether purchasing the property is a sound investment.

A well-thought-out exit strategy can prevent you from being trapped in a financially draining situation should your business needs change.

Further Advice on Leasing or Buying a Commercial Property

Leasing or buying commercial property is a major commitment that requires careful legal, financial, and strategic planning. By considering these five key factors, you can make a more informed and secure decision.

Consulting with a solicitor at an early stage will also help you navigate these complexities, ensuring that you avoid costly mistakes and secure the best possible terms for your business needs. As experts in property law, RDC Solicitors always advise consulting professionals. Here at RDC Solicitors, we offer a personalised, professional, and proactive approach from a property team that is fully committed to ensuring that you receive a first-class service for every aspect of your transaction. If you need help with buying or selling leasehold or freehold properties, then call RDC today on Bingley 01274 723858, Ilkley 01943 601173 or Bradford 01274 735511.